Skip to main content
Part of complete coverage from

The looming crisis of student loan debt

By William J. Bennett, CNN Contributor
updated 8:55 AM EST, Thu December 6, 2012
STORY HIGHLIGHTS
  • William Bennett: A college degree seems synonymous with debt and underemployment
  • Bennett: Student loan debt is reaching bubble-bursting levels
  • He says the government is not helping by flooding higher education with more loans
  • Bennett: The bad lending policies are eerily similar to causes of the subprime mortgage crisis

Editor's note: William J. Bennett, a CNN contributor, is the author of "The Book of Man: Readings on the Path to Manhood." He was U.S. secretary of education from 1985 to 1988 and director of the Office of National Drug Control Policy under President George H.W. Bush.

(CNN) -- A college degree was once synonymous with academic excellence and workforce readiness. Today, it seems synonymous with debt and underemployment.

Last week, the Federal Reserve Bank of New York reported that student loan debt increased to $956 billion, more than auto loan debt or credit card debt. More worrisome, the student loan 90-day delinquency rate increased to 11% this past quarter and for the first time exceeds the "serious delinquency" rate for credit card debt.

Student loan debt is reaching bubble-bursting levels. By comparison, in October 2007, the start of the subprime mortgage crisis, 16% of subprime mortgages were 90 days delinquent, according to Federal Reserve Chairman Ben Bernanke. By January 2008 it accelerated to 21%. If the economy heads off the fast-approaching fiscal cliff and tax rates spike for lower- and middle-class Americans, it may accelerate student loan defaults to crisis levels. The big banks got their taxpayer bailout; taxpayers may soon be on the hook for another.

William Bennett
William Bennett

Even if the markets manage to avoid another debt crisis, the mountain of student loan debt is already taking its toll on a weak economy.

Become a fan of CNNOpinion
Stay up to date on the latest opinion, analysis and conversations through social media. Join us at Facebook/CNNOpinion and follow us @CNNOpinion on Twitter. We welcome your ideas and comments.



In September, Pew Research Center reported that a record one-in-five households owe student loan debt. The average student loan debt in 2011 was $23,300.

Unlike credit card debt or automobile loans, student loans are virtually impossible to liquidate, even after declaring bankruptcy. So 20- and 30-year-olds buried under student loan debt are forced to put off other purchases crucial to the health of the economy, like buying a car or home or investing in the markets. Many are moving back in with their parents and delaying marriage and starting a family, two of the most vital building blocks to a healthy and prosperous economy. Valuable human capital is withering before it can even set its roots.

The problem now rests in the hands, and wallets, of taxpayers. In 2010, the federal government consolidated its power in the student loan industry so it could eliminate private middlemen and directly issue and guarantee loans. By 2011-12, the federal government issued 93% of all student loans.

By nature, student loans are inherently risky. Students have hardly any credit worthiness. But the government is making a bad situation even worse. Federal lenders are notoriously lax. For example, they don't distinguish between loans to students pursuing highly employable fields such as health and education, and students pursuing majors that have a high unemployment rate, like architecture and arts.

And yet, the federal government continues to flood the higher education market with more loans. In 2010, the Department of Education distributed $133 billion in student aid. In 2011, it was nearly $157 billion, a 17% increase. As I've said before, these increased subsidies have not curtailed student loan debt or tuition costs.

What's driving this debt crisis is a vicious cycle of bad lending policies eerily similar to the causes of the subprime mortgage crisis. Over the past 50 years, it has become conventional wisdom that everyone should go to college. High school guidance counselors and college admissions offices preach it, parents believe it and politicians cater to it. With near-universal demand and parents willing to pay or borrow almost anything to get their son or daughter through college, colleges and universities can drive up their prices.

When tuition prices rise, the government subsidizes the difference by increasing federal loans. But these easy loans, many of which are increasingly going to middle-class students, only increase the price ceiling that colleges can charge, thus completing, or starting, the cycle.

Of course, these aren't the only problems in today's higher education financial crisis. Many colleges and universities are failing at their most basic responsibility: education. Students are graduating ill-equipped for the needs of the modern workforce. More than half of all college graduates in 2010-11 were unemployed or dramatically underemployed. Many employers rate college graduates today as unprepared or only somewhat prepared for the job.

Reform is needed at many levels. Money-hungry institutions should be subject to more accountability and transparency; uninformed consumers should be aware of the alternatives to four-year colleges like trade and technical schools; and irresponsible federal lending needs to be reined in.

But above all, American society at large must stop pushing the notion that everyone should, or deserves, to go to a four-year college. It took a recession and massive taxpayer bailout for Americans to realize that not everyone should, or deserves, to own a home. We can't afford to learn this lesson the hard way again.

Follow us on Twitter @CNNOpinion

Join us on Facebook/CNNOpinion

The opinions in this commentary are solely those of William J. Bennett.

ADVERTISEMENT
Part of complete coverage on
updated 8:27 PM EST, Fri December 26, 2014
The ability to manipulate media and technology has increasingly become a critical strategic resource, says Jeff Yang.
updated 11:17 AM EST, Fri December 26, 2014
Today's politicians should follow Ronald Reagan's advice and invest in science, research and development, Fareed Zakaria says.
updated 8:19 AM EST, Fri December 26, 2014
Artificial intelligence does not need to be malevolent to be catastrophically dangerous to humanity, writes Greg Scoblete.
updated 10:05 AM EST, Fri December 26, 2014
Historian Douglas Brinkley says a showing of Sony's film in Austin helped keep the city weird -- and spotlighted the heroes who stood up for free expression
updated 8:03 AM EST, Fri December 26, 2014
Tanya Odom that by calling only on women at his press conference, the President made clear why women and people of color should be more visible in boardrooms and conferences
updated 6:27 PM EST, Sat December 27, 2014
When oil spills happen, researchers are faced with the difficult choice of whether to use chemical dispersants, authors say
updated 1:33 AM EST, Thu December 25, 2014
Danny Cevallos says the legislature didn't have to get involved in regulating how people greet each other
updated 6:12 PM EST, Tue December 23, 2014
Marc Harrold suggests a way to move forward after the deaths of NYPD officers Wenjian Liu and Rafael Ramos.
updated 8:36 AM EST, Wed December 24, 2014
Simon Moya-Smith says Mah-hi-vist Goodblanket, who was killed by law enforcement officers, deserves justice.
updated 2:14 PM EST, Wed December 24, 2014
Val Lauder says that for 1,700 years, people have been debating when, and how, to celebrate Christmas
updated 3:27 PM EST, Tue December 23, 2014
Raphael Sperry says architects should change their ethics code to ban involvement in designing torture chambers
updated 10:35 PM EST, Tue December 23, 2014
Paul Callan says Sony is right to call for blocking the tweeting of private emails stolen by hackers
updated 7:57 AM EST, Tue December 23, 2014
As Christmas arrives, eyes turn naturally toward Bethlehem. But have we got our history of Christmas right? Jay Parini explores.
updated 11:29 PM EST, Mon December 22, 2014
The late Joe Cocker somehow found himself among the rock 'n' roll aristocracy who showed up in Woodstock to help administer a collective blessing upon a generation.
updated 4:15 PM EST, Tue December 23, 2014
History may not judge Obama kindly on Syria or even Iraq. But for a lame duck president, he seems to have quacking left to do, says Aaron Miller.
updated 1:11 PM EST, Tue December 23, 2014
Terrorism and WMD -- it's easy to understand why these consistently make the headlines. But small arms can be devastating too, says Rachel Stohl.
updated 1:08 PM EST, Mon December 22, 2014
Ever since "Bridge-gate" threatened to derail Chris Christie's chances for 2016, Jeb Bush has been hinting he might run. Julian Zelizer looks at why he could win.
updated 1:53 PM EST, Sat December 20, 2014
New York's decision to ban hydraulic fracturing was more about politics than good environmental policy, argues Jeremy Carl.
updated 3:19 PM EST, Sat December 20, 2014
On perhaps this year's most compelling drama, the credits have yet to roll. But we still need to learn some cyber lessons to protect America, suggest John McCain.
updated 5:39 PM EST, Mon December 22, 2014
Conservatives know easing the trade embargo with Cuba is good for America. They should just admit it, says Fareed Zakaria.
updated 8:12 PM EST, Fri December 19, 2014
We're a world away from Pakistan in geography, but not in sentiment, writes Donna Brazile.
updated 12:09 PM EST, Fri December 19, 2014
How about a world where we have murderers but no murders? The police still chase down criminals who commit murder, we have trials and justice is handed out...but no one dies.
updated 6:45 PM EST, Thu December 18, 2014
The U.S. must respond to North Korea's alleged hacking of Sony, says Christian Whiton. Failing to do so will only embolden it.
updated 4:34 PM EST, Fri December 19, 2014
President Obama has been flexing his executive muscles lately despite Democrat's losses, writes Gloria Borger
ADVERTISEMENT
ADVERTISEMENT
ADVERTISEMENT
ADVERTISEMENT